Democrat's energy bill focuses on mileage, biofuels

StephanieI. Cohen

SOUTH ORANGE, N.J. (MarketWatch) -- Democrats will take their first crack at passing energy legislation since gaining a majority in the House and Senate when they begin debating a bill Monday afternoon with an eye to boosting renewable energy sources and weaning the United States off of traditional fossil fuels.

Provisions in the bill, S. 1419, would set new targets for domestic biofuels production and would require increases in the fuel economy of vehicles that would reduce U.S. oil imports by 2.5 million barrels a day, according to a summary of the legislation released by the Democratic Policy Committee. The United States currently consumes roughly 21 million barrels of petroleum each day.

The most aggressive provision in the legislation aimed at curtailing U.S. oil consumption is language requiring auto manufacturers to build cars that use less fuel. But the language requiring an increase in corporate average fuel economy, or CAFE, standards for vehicles and light trucks to 35 miles per gallon by 2020s is expected to face fierce opposition from Democratic lawmakers hailing from Michigan, home to the domestic auto industry.

The provisions taken together would eventually cut U.S. oil consumption by more than 4 million barrels per day.
--Majority Leader Harry Reid

The bill's other significant provision would ramp up the federal renewable fuels mandate enacted in the 2005 energy bill and require 36 billion gallons of renewable biofuels to replace fossil fuels in the nation's fuel supplies annually by 2022. The current standard sets a goal of 8.5 billion gallons per year in 2008.

The biofuels proposal would also move production away from corn-based ethanol, which was the big winner under the Republican-drafted biofuels agreement. The legislation would require cellulosic ethanol alternatives that rely on grasses and agricultural waste to be used to meet 60% of the increase in renewable fuel production in 2022.

The bill contains a host of other modest conservation and efficiency measures that would improve energy efficiency for light bulbs and home appliances, encourage research for so-called clean-coal technology, and set a national goal for reducing gasoline consumption.

Climate change

The bill is also noteworthy for what it doesn't contain -- language addressing climate change and a cap on greenhouse-gas emissions created by burning fossil fuels. Democrats have steadfastly pushed for climate-change provisions in past Republican energy bills.

Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., is planning to offer an amendment to the legislation during floor debate this week that would require retail energy providers to generate a portion of their electricity from renewable energy sources. Known as a renewable portfolio standard, and often referred to as a soft-cap on power plant emissions, the proposal would likely provide some reductions in power plant emissions in later years, according to analyses of the proposal.

The biofuels provisions would help reduce greenhouse gas emissions from cars by 15% to 18 percent by 2025, according to an assessment by the Democratic Policy Committee.

Critics from both sides

While Democrats have championed calls in recent years to pass energy legislation to dramatically ratchet down U.S. demand for oil and other traditional fossil fuels, the bill has generated some criticism from critics, including Democrats, who think the legislation doesn't go far enough.

Sen. John Kerry, D-Mass., said last week that it would be "unacceptable" if the legislation doesn't increase fuel economy standards to at least 35 miles per gallon. The standard is currently 27.5 mpg.

Kerry also criticized the bill for containing too many loopholes that could allow automakers to sidestep increases. The advocacy group Public Citizen also criticized the fuel economy proposal, claiming it is lower than what manufacturers could achieve with existing technologies. A battle over fuel economy standards could ensue on the Senate floor.

The biofuels proposal is also less aggressive than President Bush's call in his State of the Union for 35 billion gallons a year of biofuels to be produced and blended into U.S. fuel supplies within the next 10 years.

But Senate Majority Leader Harry Reid, D-Nev., defended the bill on Monday, saying it was a "starting point" and that the provisions taken together would eventually cut U.S. oil consumption by more than 4 million barrels per day.

There aren't many new ideas in the bill, said John Felmy, chief economist for the American Petroleum Institute, an industry trade group for the petroleum industry. He characterized the bill on Monday as a repeat of the energy "mistakes of the 1970s." The petroleum lobby is worried that provisions in the legislation will raise costs for domestic energy production, limit access to drilling sites, and repeal tax breaks granted to the industry by the previous Republican-controlled Congress.

The industry expects to see language included in the separate energy tax packages being crafted in both the House and Senate that would repeal a domestic manufacturing tax deduction given to domestic oil and natural gas companies in 2004. Rolling back the tax deduction for just oil and gas companies would generate revenue to fund Democratic energy proposals. API sees the provision as a "backdoor windfall profits tax" on the industry.

House Democratic leadership has set a July 4 deadline for completing work on its version of energy legislation.

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